Posted on 01/31/2015 5:03:40 PM PST by Lorianne
My breakfast companion looked gloomy.
He’d flown into Washington from Vienna the day before. When he deplaned, he found a shocking email waiting for him: a demand from his banker for immediate payment of €12,000. Although a resident of Austria, he had taken a home mortgage in Swiss francs, which carried a lower interest rate than mortgages in euros. But 48 hours before he had arrived in the United States, the Swiss franc had surged by 20 percent against the euro. That currency appreciation had wiped out his equity in the house. His frightened banker wanted a new infusion of cash to replace the vanished equity.
In the second half of January, hundreds of thousands of homeowners across Europe—and especially across Central and Eastern Europe—have been jolted in similar ways. Their distress is contributing to a political and financial crisis in a region already shadowed by economic anxiety and Russian aggression.
First, some background: In small European countries, especially those that don’t use the euro, local banking markets are not very competitive and often dominated by foreign banks. These foreign banks, which typically borrow in euros, worry about the risk of lending in the local currency. If that currency depreciates, the lending bank could suffer severe losses. Bankers being bankers, they look instead for ways to offload that currency risk onto their customers.
Enter mortgages denominated in Swiss francs. Interest rates in Switzerland have historically ranked among the lowest in the world. (You can get a Swiss mortgage today for a fixed rate as low as 1.5 percent.) During the real-estate bubble of 2005-2007, mortgage rates in Central and Eastern Europe could cost in the double digits. Many homeowners were tempted to borrow in Swiss francs instead.
(Excerpt) Read more at theatlantic.com ...
Maybe but if it’s in The Atlantic idunno.
It sounds pretty risky to mix currency exchange rates up with a mortgage to me, this isn’t the first time the Swiss Franc has had a pronounced spike in recent years.
Where was George Soros on this one ??
Laughing all the way to the bank, I expect.
With a little luck, this could be the crack in the facade that takes down the EU.
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